This month at Wealth Architects Insights we wanted to focus on some of the things you should be mindful of during this environment as well as provide you with an update on some of the key super legislation in effect from 1 July 2020.
What a financial year it has been, a truly testing time for many Australians and other nations around the world. The world has had to adapt to vast and rapid changes on an ongoing basis and in Australia’s point of view has resulted in society working together. As a nation we should be proud of what we have been able to achieve so far and how quickly we have been able to adapt. Now, as the economy and nation start to open once again, we will look towards getting things back up and running and hopefully see some sort of normality.
3 things to be mindful of during this current environment
1. Impacts to Franking Credits and Dividends
The current economic environment has impacted different companies differently and will potentially result in lower overall earnings and in turn, lower dividends and franking credits being paid by listed companies. APRA released guidance on the 7th of April 2020 recommending the banks and insurers (two big players in the dividend paying market) to defer or reduce their dividends. This may impact your portfolio from an income point of view over the short to medium term. Therefore, it is vitally important to always have a well-diversified portfolio with both income and capital growth producing assets.
2. Buyers Beware – New Fixed Income type products
There has been a rise in Residential Mortgage-Backed Security (RMBS) raisings in the last few months by various companies and investors looking at these options in search for higher income. One key thing to remember is that RMBS securities played a big role in triggering the downfall during the Global Financial Crisis where loans packaged in these securities began defaulting resulting in investors losing a lot of money. ASIC is keeping a close watch of these type of products and although they may provide a lucrative short-term income return it is important to do your research and understand what it is you are investing in and the risks involved.
3. Homebuilder Scheme
Recently the Government announced the Homebuilder scheme where they will provide those eligible with a $25,000 grant to help kick start the building industry. Be careful if you are considering this, as there are a number of conditions that you must qualify for. Also, it may be wise when negotiating with a builder if you are planning to renovate and build not to mention that you may qualify as they may increase their prices as a result. To see more information on the Homebuilder grant and how to apply, visit the Treasury website and follow the links specific to your state.
New pieces of superannuation legislation that are in effect from 1 July 2020
1. Automatic halving of minimum account-based pension payments
Due to Covid-19 the government has recently announced that minimum pension payment requirements for account-based pensions have been reduced by 50% for both the 2019/20 and 2020/21 financial year. More importantly if you are noted down as receiving the minimum pension it automatically reduced on 1 July 2020.
For point of reference the changes are outlined below;
|
Age |
Previous minimum annual pension payment factors |
NEW minimum annual pension payment for 2020-21 |
|
Under 65 |
4% |
2% |
|
65 -74 |
5% |
2.5% |
|
75-79 |
6% |
3% |
|
80-84 |
7% |
3.5% |
|
85-89 |
9% |
4.5% |
|
90-94 |
11% |
5.5% |
|
95+ |
14% |
7% |
2. Proposed Age Extension for Work Test – yet to pass the senate
Super fund members under age 67 can now make non-concessional (post tax) contributions without needing to meet the work test. Essentially, this means that those aged 65 and 66 can now contribute $100,000 per financial year as long as they have a total super balance of under $1.6million and are not currently within an a bring-forward period without the need to meet a work test.
3. Proposed Spouse Contribution Rule Changes – yet to pass the senate
The new rules also apply to spouse contributions where you can now make these contributions where the receiving spouse is up to age 74 (was previous 69). It is important to also remember that where the receiving spouse is aged 67 or over, they need to satisfy the work test. This can really benefit the spouse contributing from a tax perspective, as a maximum tax offset of $540 applies where the receiving spouses income is below $37,000 and a contribution of at least $3,000 is made. If your spouse earns more then $37,000 you can still receive an offset but it is reduced up until the spouses income reaches $40,000.
Speak to your financial adviser if you would like more information.
Final Word
Although there are changes on the horizon come August and still headwinds with regards to markets, the economy and portfolio income. It is important to remain vigilant and highly diversified. Remember to lean on your financial adviser as we are here to support you through these difficult times.
If you have any questions about what is in this article, or would like an obligation free chat, please don’t hesitate to contact us.
The Wealth Architects team want wish you a happy end of financial year. Let’s hope that next financial year is better one for the economy, markets and life in general.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent
